On June 15th, the 421-a subsidy expired. This tax break, which was established in 1971, has subsidized the construction of hundreds of thousands of buildings across the city, largely in Manhattan, and typically requires developers to build some below-market rentals. According to critics, however, it has amounted to a tax giveaway for developers, has cost the city billions annually in tax revenue, and has resulted in too few units for low-income New Yorkers. On the flip side, developers have warned that without 421-a, new construction will be too expensive to pursue and could stop new development at a time of escalating housing prices.
There have been some new programs that were proposed to take the place of 421-a, principally 485-w. This new program would provide a property tax exemption for 35 years in exchange for developers setting aside a percentage of rental units as affordable. This would be a more stringent system than 421-a was, however, it still is quite controversial. While Gov. Kathy Hochul and The Real Estate Board of New York are in support of the bill many tenant advocates are against what they consider a “waste of tax dollars”. In part due to this conflict 485-w did not go to legislature.
Currently the subsidy has expired, and nothing new has been passed in its place. We believe that it is unlikely there will be any noticeable short term impact. However, 421-a has been a bedrock of New York City construction projects for nearly fifty years, and whether its expiration is a good thing or a bad thing, its affects will be felt. It appears that the future successors of 421-a will hinge in large part on the 2022 New York gubernatorial election, as while Hochul’s stance is clear, republican nominee Lee Zeldin has not released any plans regarding state affordable housing if he is elected governor. This matter is something we’ll continue to keep an eye on and we will share more updates when we have them.